EXHIBIT 10.50
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL
TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND BRACKETS AND HAS
BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
WAREHOUSING, DISTRIBUTION AND RELATED SERVICES AGREEMENT
--------------------------------------------------------
THIS
WAREHOUSING,
DISTRIBUTION
AND RELATED SERVICES AGREEMENT the
"Agreement") is made as of March 7, 2008 between THE GREAT ATLANTIC &
PACIFIC
TEA COMPANY, INC., a Maryland corporation with principal
offices located at 2
Paragon Drive,
Montvale, New Jersey 07645 ("A&P") and
C&S WHOLESALE GROCERS,
INC., a Vermont corporation with principal offices located at 7
Corporate Drive,
Keene, New Hampshire 03431 ("C&S" and together with A&P,
the "Parties").
W I T N E S S E T H:
WHEREAS,
C&S operates warehouse and distribution centers, performs
procurement and
wholesale supply
services, and provides
related operational
services to its customers; and
WHEREAS,
A&P has
agreed to retain
C&S to provide A&P certain warehousing
and distribution
services, and
certain wholesale supply services, on the
conditions set forth in this Agreement and the schedules
hereto.
NOW,
THEREFORE,
in consideration of
the mutual covenants and obligations
hereinafter set forth, the Parties hereto, intending to be legally
bound, hereby
agree as follows:
1. PRELIMINARY MATTERS. The Parties agree that as of the
Effective Date, this
Agreement shall
supersede all prior
agreements
between C&S and A&P, and
between
C&S and Pathmark Stores, Inc.
("Pathmark"), as more fully described
in Schedule 1.2
hereto. The Parties also agree that future
Approved Budgets
will
comport with
the form of the Interim Budget attached hereto as
Exhibits
1.4(a)-(g) so
as to facilitate the budget process described in
Schedule 8.
2. WAREHOUSING SERVICES. During the Term of this Agreement,
C&S shall provide
to A&P
comprehensive, managed warehouse, distribution and related services
on
the terms and conditions set forth in this Agreement and the
schedules
hereto,
as more particularly described in Schedule 2. Together, the
Warehousing
Services, the Transportation Services, the Procurement Services,
the Purchasing
Services and the Additional Services shall be referred to as
the "Services."
3. FACILITIES AND
FIXED ASSETS.
Commencing upon the
Effective Date, C&S shall
perform the
Warehousing Services
from the Facilities listed in Schedule
3,
and/or from such
other warehouse facilities as the Parties may determine from
time to time,
subject to the terms and conditions set forth in Schedule 3 of
this Agreement.
C&S shall maintain
the Facilities, and
shall invest in such
Fixed
Assets in support of the operations at the Facilities, as more
particularly
described in Schedule 3.
4. TRANSPORTATION SERVICES. The Parties agree that A&P
will be responsible
for
the overall
direction of all outbound transportation to the A&P Stores, and
that
C&S will hire, on a sub-contracted basis, common
carriers for
the
delivery of
Merchandise to certain
A&P Stores
all in accordance with the
terms
and conditions set forth in Schedule 4. C&S shall manage inbound
transportation
for the account of A&P in accordance with the terms set
forth
in Schedule 4. In all events, A&P shall have the right to assume
responsibility
for all inbound and outbound
transportation and
C&S shall
perform such
transportation services as A&P may direct.
5. OTHER SERVICES.
C&S agrees to
provide certain Other Services on behalf
of
A&P in
accordance with the terms and conditions set forth in Schedule 5.
In
consideration
for providing the Other Services, C&S shall receive the
remuneration set
forth in Schedule 5.
6. SERVICES FEES.
As consideration
for performing the
Services under this
Agreement,
C&S shall receive
from A&P payment of the Services Fees as
set
forth in
Schedule 6 hereof.
7. PROCUREMENT AND
PURCHASING
SERVICES; [[*]].
Subject
to the terms and
conditions of
this Agreement, A&P agrees to buy from C&S certain
Merchandise
for use or
resale at the A&P Stores. The allocation of
responsibilities for
the procurement
and purchase of such Merchandise between A&P and C&S shall
be
as set forth in
Schedule 7 hereof.
[*].
8. PREPARATION OF
INITIAL BUDGET AND ANNUAL BUDGETS; SHARED SAVINGS. The
Parties shall
agree upon and regularly review annual budgets for all Services
prepared
to an engineered standard
on a facility-by facility basis in
accordance with
Schedule 8.
The Initial
Approved Budget and all subsequent
Approved Budgets
shall be prepared and
reviewed in accordance with the terms
and conditions
set forth in Schedule 8.
9. REMUNERATION AND PAYMENT OF SERVICES FEES AND OPERATING COSTS.
A&P will pay
C&S all
Services Fees and will pay or reimburse C&S for all Costs
incurred by
C&S in the
provision of the Services under this Agreement, as set forth in
Schedule 9
hereto.
10.INDEMNIFICATION AND
INSURANCE;
FORCE MAJEURE. Schedule 10 sets forth
indemnification
rights and insurance arrangements between the Parties.
11.TERM AND
TERMINATION.
This Agreement
will commence on March 30, 2008 (the
"Effective
Date"), and shall
remain in effect through September 29, 2018,
unless earlier
terminated in accordance with Schedule 11.
12.MISCELLANEOUS. The general conditions and definitions set forth in
Schedule 12 are
incorporated herein by reference and made a part hereof.
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date
first written above.
THE GREAT ATLANTIC AND
C&S WHOLESALE GROCERS, INC.
PACIFIC TEA COMP.
By:/s/ Eric Claus
By:/s/ Richard B. Cohen
--------------
--------------------
Name: Eric Claus
Name: Richard B.
Cohen
Title: President and Chief
Title: Chairman and Chief
Executive Officer
Executive Officer
3
<PAGE>
SCHEDULE 1
PRELIMINARY MATTERS
-------------------
PRELIMINARY STATEMENT.
The Parties wish to
materially change their contracting
relationship as it
exists under the Prior Agreements (as defined below).
Specifically, the
Parties wish to establish, as of the Effective Date,
a
strategic "open-book"
relationship
to merchandise, procure, warehouse and
distribute supermarket
products to the
A&P Stores in the
most
cost-efficient
manner possible. The
Parties further desire
to collaborate with respect to the
exploration, evaluation and implementation of practices and
procedures to reduce
A&P's total supply chain costs and allow each Party to share equitably in
the
benefits of such practices and procedures.
1.1 EFFECTIVE
DATE. The "Effective
Date" shall mean March 30, 2008.
1.2 PRIOR
AGREEMENTS. The
Parties agree that, subject to the terms hereof,
and
except as expressly provided herein, the
Master Supply Agreement by
and
between A&P and
C&S dated October
27, 2003 (the "Master Agreement"),
the Supply
Agreement by and
between A&P and
C&S dated June 27, 2005 (the
"Ocean
Agreement"), and the First Amended and Restated Supply Agreement
by
and
between Pathmark and C&S dated January 29, 1998 (the "Pathmark
Agreement"), together
with all amendments thereto (collectively, the
"Prior
Agreements") shall
remain in force and
effect until the Effective
Date.
On the Effective Date,
this Agreement shall
replace and
supersede
the
Prior Agreements in all respects, the Prior Agreements
shall be
terminated
and no longer in effect as of the Effective Date, and
neither
of
the Parties hereto shall thereafter have any rights, duties or
obligations under the Prior Agreements; provided, however, with
respect to
any
claim or cause of action that becomes known subsequent to the
Effective
Date (and should not have been known, through ordinary
diligence,
prior to the Effective
Date) and arises from
or is related to
any set of
facts or circumstances which arose or existed prior to the
Effective
Date, the terms and conditions of the respective Prior
Agreement
(including
those related to dispute resolution) shall control.
[[*]].
All claims
that were known to a complaining Party, or through ordinary
diligence
should have been known by such Party, prior to the
Effective
Date shall
be deemed waived and
the complaining
Party shall be forever
barred
from raising such claims as against the other, except as otherwise
set
forth in this Schedule 1.2 or with
respect to such amounts as have
been
properly billed
before the date hereof but not paid as of
the date
hereof.
For the avoidance of
doubt, no Affiliates of the Parties are
or
shall
be deemed to be Parties to this Agreement.
Notwithstanding
the
foregoing,
each Party represents and warrants to the other Party that none
of its
Affiliates possesses
any claims
against such other Party. A&P
hereby
represents that as the sole shareholder of Pathmark, A&P has all
proper
right and authority to consent to the
termination of the Pathmark
Agreement
and to waive any and all potential Pathmark claims and causes
of
action in
accordance with the terms of this Schedule 1.2.
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
4
<PAGE>
1.3 SUPPLY CHAIN
EVALUATION.
A&P and
C&S wish to work
together to create a
network of
distribution centers that, to the greatest extent possible, are
dedicated
exclusively to the service of A&P and the delivery of products
to
the A&P Stores. [[*]]. The Parties further wish to identify
opportunities to achieve warehousing and distribution efficiencies and to
implement
practices and policies that will minimize A&P's costs
throughout
the
supply chain. In furtherance of these goals, the
Parties agree
to
jointly
retain during the "Ramp-Up Period" (defined in Schedule 1.4
below)
and
annually thereafter
the consulting firm of
[*] or an equivalent firm
("Consultant") to conduct a comprehensive evaluation of the entire A&P
supply
chain and to make recommendations with respect to,
among other
areas,
supply chain network configuration, facilities design, technology
and
systems design, loss prevention and health and safety,
budgeting,
operating
best practices and policies, performance standards and shared
cost-savings/incentive-sharing opportunities. The Parties by mutual
agreement
shall retain Consultant and shall each pay fifty percent
(50%)
of
the fees incurred by Consultant in
providing services
pursuant to
Schedule
1.3. The Parties anticipate that they will spend no more
than
[*]
annually, in the aggregate, in fees and expenses paid to the
Consultant. The
Parties shall incorporate the recommendations of
Consultant
in the creation of the Initial Approved Budget and subsequent
Approved
Budgets, the Service Specifications and Performance Measures,
and
other
warehousing practices
and policies that will be implemented on or
after the
Effective Date.
1.4 RAMP-UP
PERIOD AND INTERIM BUDGET. The period commencing with the
Effective
Date and continuing through September 28, 2008 shall be
referred
to as the
"Ramp-Up Period."
During the Ramp-Up Period, the Parties shall
operate
in accordance with the budgeted costs
and income items set forth
in
the following Exhibits: Exhibit 1.4(a)
(Budget
Summary),
Exhibit
1.4(b) (Total
Warehousing
Costs),
Exhibit
1.4(c)
(Total
Transportation Costs);
Exhibit 1.4(d)
(Total Direct Overhead Costs);
Exhibit
1.4(e) (Capital
Expenditures);
Exhibit 1.4(f)
(Total Services
Fees); and
Exhibit 1.4(g) ([*]) (collectively, Exhibits 1.4(a)-(g) shall
be
referred to as the "Interim Budget"). Certain components of
the
Interim
Budget shall also serve as the "Baseline Budget" which the
Parties
shall use
for the purpose of computing whether and to what extent a Cost
Savings
Gainshare Incentive Fee is payable to C&S as described in
Schedule
8.11 hereof. The
Initial Approved Budget and all future Approved
Budgets
will comport with the form of the Interim Budget, and will
include
the same
Budget Summary and categories of line item expenses and
revenues.
1.5 INITIAL
APPROVED BUDGET. Commencing promptly after the
Effective Date,
the
Parties shall conduct
meetings for
the preparation of the Initial
Approved
Budget and the Service Specifications in accordance with
Schedule 8
hereof. The Parties
shall collaborate with the Consultant with
respect
to the preparation of
the Initial Approved Budget and the Service
Specifications and
the Parties shall make best efforts to
complete them
not later
than thirty (30) days
prior to the commencement of the First
Contract
Year. In the event
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
5
<PAGE>
that any
of the Initial Approved Budget and/or the Service Specifications
have not
been agreed upon by the Parties at least thirty (30) days prior
to
the first day of the First Contract Year,
any such dispute shall
be
resolved
in accordance with
the dispute
resolutions provisions set forth
in Schedule 12 of this
Agreement. The
Initial Approved Budget shall be
the
Approved Budget for the First Contract Year. The Parties agree that
the
Initial Approved Budget and each subsequent Approved Budget
shall
cover
periods corresponding
to C&S's fiscal
year, which
is a 52-week
period (or
53-week period every five to six years)
that runs through the
last
Saturday in September. The Parties will make any prorations
necessary
to account for the
Ramp-Up Period or any 53-week Contract Year.
The
schedule of Contract
Years for the Term is set forth on Exhibit
1.5
attached
hereto.
6
<PAGE>
SCHEDULE 2
WAREHOUSING SERVICES
--------------------
2.1 WAREHOUSING
AND LOGISTICS SERVICES. During the Term of this Agreement,
C&S
shall provide to A&P (and, with respect to any A&P Operated
Facility,
A&P
shall perform on its own account) comprehensive
managed warehousing
and
logistics services on
the terms and conditions set forth in this
Agreement
(the "Warehousing Services"), including but not limited to:
the
daily operation and
maintenance of the Facilities; handling and confirming
receipt
of inbound orders; loading and unloading; storage;
selection;
pallet
building; case labelling (where applicable); providing off-site
resources
for logistics management or analytical services;
processing
claims
for recovery of lost
or damaged Merchandise, as applicable; the
Recyclable
Material
Processing
Services; providing trained, skilled
personnel;
and interfacing with
A&P personnel, all in accordance with the
performance standards
set forth below and the operating procedures
and
Service
Specifications (the "Services Standards") and targeted
performance
levels
(the "Performance Measures") that shall be set forth in the
Service
Specifications
and made a part of this Agreement. The Service
Specifications shall
also set forth (i)
A&P's obligations that relate to
the
Services performed by
C&S including,
but not limited to, timely
provision
of orders, ad forecasts, resolving issues with short-coded
product,
product discontinuances, new items, etc., and (ii) the penalties
that shall
be assessed to C&S for its failure to perform the Services in
compliance
with the Service Specifications; provided that in
no event
shall
C&S be required to pay any such penalty to the extent:
y) C&S has
already
borne Costs resulting directly from the failure to perform for
which
the penalty is being assessed (i.e., in the case
of controllable
Costs in
excess of the Approved
Budget); and z) the
amount of such Costs
exceeds
the amount of the penalty prescribed under the Service
Specifications.
The Service
Specifications may be revised from time to
time in
accordance with Schedule 8.
2.2 ADDITIONAL
SERVICES. From
time to time, A&P
may request the provision of
additional
services not within the scope of Services ("Additional
Services"). In such
event, A&P and C&S shall negotiate in good faith to
mutually
agree upon a description of such Additional Services, including
revisions
to the Service Specifications, if
necessary, and an adjustment
of the
Approved Budget,
as determined or adjusted in accordance with
Schedule
8. For
the purposes of this Agreement, to the extent the
Additional
Services are mutually acceptable to C&S and A&P, such
Additional
Services shall form part of the Services hereunder and
the
Parties
will mutually determine an appropriate adjustment to the Services
Fee, if
applicable.
2.3 EXCLUSIVITY.
Except as may be
otherwise stated in
this Agreement,
A&P
agrees
that for the Term of
this Agreement it shall not contract with any
third
party other than
C&S for the rendering of the Warehousing Services,
except
with regard to
promotional, seasonal,
cross-dock,
DSD and other
high-velocity or
specialty Merchandise. Notwithstanding the foregoing,
nothing in
this Agreement shall be deemed to prohibit or restrict A&P
from
performing
Warehousing Services on its own account or from contracting for
any
Warehousing Services with any Affiliate of A&P, provided
that neither
the Base
Management Fee nor the Administrative Management Fee payable to
C&S
under this
7
<PAGE>
Agreement
shall be reduced as a result of A&P exercising its rights under
this
Schedule 2.3. Without
limiting the foregoing in any way, the Costs
related to
the Facilities and Fixed Assets shall continue to be chargeable
to
A&P during the Term of the Agreement even to the extent such
are
underutilized in the event of A&P's exercise of its rights under this
Schedule
2.3.
2.4 PERFORMANCE
STANDARDS.
In addition to the Services Standards and
Performance Measures, C&S covenants and agrees to perform the
Services and
to
maintain and operate the Facilities (including the cleanliness
thereof)
with
the degree of care, skill and diligence consistent with an
experienced, reputable warehouseman operating a warehouse and
distribution
service
network in the
Northeast United
States, to the extent C&S's
ability
to perform the Warehouse Services in accordance with such
standards
is not prohibited by the Approved Budget, the Flex Budget or
the
withholding by
A&P of any required approval.
C&S covenants and
agrees
that it
shall use commercially
reasonable efforts to identify for A&P all
necessary
and desirable steps and measures to permit C&S to comply with
its
obligations under this Schedule so as to provide A&P the opportunity
to
include such steps and measures in the Approved
Budget or the
Flex
Budget and
to provide any required approvals.
2.5 WAREHOUSING
SERVICES TO BE
PROVIDED FROM THE FACILITIES. The Warehousing
Services
will be provided from the Facilities (as defined in Schedule
3.1)
and from
such other applicable
facilities as
may be permitted under
the
terms of
this Agreement.
2.6 C&S
COVENANTS. In addition
to any of its other obligations as set out in
this
Agreement,
C&S covenants and
agrees that during the Term it will,
consistent
with the performance standards set forth in Schedule 2.4 above:
(a)
take all
necessary and
desirable steps and precautions to
protect
Merchandise from
weather, water, theft,
vandalism and
all other
reasonably foreseeable hazards and damages;
(b)
comply with all
federal, provincial and municipal governmental laws,
rules, regulations,
by-laws,
zoning
legislation,
guidelines,
ordinances, orders of any municipal or other government body, and
any other
restrictions, covenants and other limitations (including,
without
limit, those in respect of environmental and health
and
safety matters) applicable to the occupation and operation of the
Facilities, the providing of the Services and the Other Services
and
to otherwise comply with the terms and conditions of this
Agreement.
C&S shall keep in
full force and effect all licenses, registrations
and other
qualifications imposed
by any applicable governmental
authorities necessary to occupy and operate the Facilities, and to
provide the
Services and to otherwise fulfill the terms and
conditions of this Agreement;
(c)
except
as otherwise
instructed by A&P, not place any Merchandise in
proximity to
any other products or any material
that is or may be
noxious, flammable, hazardous or whose characteristics may
adversely
affect the quality, fitness or intended purpose, merchantability
and
other characteristics of the Merchandise or
8
<PAGE>
otherwise cause
in any manner whatsoever Merchandise to be
adulterated or deteriorate; provided that C&S shall use
commercially
reasonable efforts
to notify A&P where any of the Service
Specifications or provisions in the Approved Budget are
inconsistent
with the protections referred to in this sub-schedule (c); and
(d)
maintain all of
the Fixed Assets in good working order and promptly
(or as soon as practicable in the case of
refrigeration equipment)
repair and/or replace
any Fixed Assets that may prevent or
hinder
C&S's ability to provide the Services in accordance with the terms
and conditions of this Agreement. C&S covenants and agrees that it
shall use commercially reasonable efforts to identify all necessary
and desirable maintenance and repair requirements outlined
in this
sub-schedule (d) for
A&P and to provide
A&P with an opportunity to
include such requirements in the Approved Budget.
2.7 INDEPENDENT
CONTRACTOR. It is
expressly intended by the Parties hereto
and each
Party hereby specifically warrants, represents and agrees, that
each
Party (the "Performing
Party" for the purposes of this Schedule) is
an
independent contractor having its own established place of business
and
all
persons assisting
the Performing Party in the performance of its
obligations under this Agreement are and shall be deemed
the employees of
the
Performing
Party or under
contract to the Performing Party for all
purposes,
and not of the other
Party or any Affiliate of the other Party.
It is
further intended and
agreed between the Parties that each Party
shall
have sole control of the manner and means of performing its
obligations under this Agreement. The specific means of
accomplishing the
purposes
of this Agreement shall be left to the discretion of the
Performing
Party, provided that the purpose of this Agreement is
accomplished in a cost-effective manner and otherwise in a manner
intended
to benefit
A&P and C&S.
Each Party agrees that its officers, managers, or
other
management
or supervisory
personnel employed by them shall effect
such
management, direction and control in the sole and complete
discretion
of such
Party.
2.8 INVENTORY
CONTROL. The
Parties hereto agree that they will agree to
appropriate inventory control procedures (e.g., physical
inventories
and
cycle
counts, as applicable) as part of the
Service Specifications. The
Parties
will further include
in the Service Specifications procedures for
regulating
inventory levels
(including investment
buy formulas, taking
into
account the cost of money, and allocations of
responsibility for
inventory
level overages or shortfalls) and handling short-coded or
excess
product.
2.9 RECYCLABLE
MATERIAL PROCESSING. C&S agrees that throughout the Term of
this
Agreement it shall manage the processing of
certain non-hazardous
recyclable
materials located
at the A&P Stores
or held at the Facilities
for
use or resale at the A&P Stores
including,
but not limited to,
cardboard,
pallets and
plastic materials (the "Recyclable
Material") on
A&P's
behalf (the "Recyclable Material Processing Services") and shall
be
considered
to be part of the Warehousing Services. Recyclable Material
expressly
excludes: (i)
Merchandise and other items traditionally handled
through
reclamation; and (ii) environmentally hazardous materials or
food
waste.
Specifically,
A&P agrees to bale or package in an orderly fashion
all
Recyclable Material at the A&P Stores, and to label
9
<PAGE>
all such
packages, so
as to permit their collection,
inventory, and the
tracking
of their movement, as
set forth in the Service Specifications.
C&S
agrees to package Recyclable Materials at the Facilities in the same
manner.
C&S
agrees to recover all Recyclable
Materials from
the A&P
Stores,
and to assemble the
packages of all Recyclable Materials at
the
Facilities, and shall arrange for the transport of all such materials to
an
appropriate location for processing. All Recyclable Materials will be
processed
by C&S in accordance with the Service Specifications.
C&S
agrees to
establish and maintain a means of tracking and reporting the
movement
of all Recyclable Materials from the A&P Stores and the
Facilities, as
well as the redemption or other processing of such
Recyclable
Materials on a unit-by-unit basis. The Parties acknowledge and
agree
that such a tracking process does not exist as of the
Effective
Date, but
in no event will C&S establish and deploy a tracking system
later
than ninety (90) days after the
Effective Date. [[*]].
All labor,
transportation
and other costs incurred by C&S in performing the
Recyclable
Material Processing
Services shall be deemed to constitute
Costs,
as that term is
hereinafter defined.
Unless otherwise
agreed in
the
Service
Specifications, the A&P Stores will not load dunnage or
other
refuse on
C&S's or its contractors' trailers. [*].
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
10
<PAGE>
SCHEDULE 3
FACILITIES AND FIXED ASSETS
---------------------------
3.1 FACILITIES.
Commencing
on the Effective Date and continuing
throughout
the Term
of this Agreement, C&S (and, in the case of the Edison GMDC
Facility,
A&P) shall perform all Warehousing
Services and Transportation
Services
hereunder from the following warehouse and/or distribution
centers
that are owned or
leased by C&S or one of its Affiliates, and any
new or
replacement warehouse
and/or distribution centers, subject to
Schedule
3.5 (the "Facilities"):
(a)
Facilities
Dedicated Exclusively to Service of A&P
Stores (each, a
--------------------------------------------------------------------
"Dedicated Facility"):
----------------------
Facility
Product Category(ies)
--------
---------------------
[*]
[*]
*
[*]
**
[*]
(b)
Facilities
Servicing A&P and
at least one other C&S Customer (each,
--------------------------------------------------------------------
a "Shared Facility"):
---------------------
Facility
Product
Category(ies)
--------
---------------------
[*]
[*]
(c)
Facilities
Operated by A&P (each, an "A&P Operated Facility"):
--------------------------------------------------------------
Facility
Product Category(ies)
--------
---------------------
[*]
[*]
(d)
Shipping Origin.
A schedule
setting forth each of the A&P Stores
that are serviced by each of the Facilities listed above has been
annexed to
this Agreement as Exhibit 3.1.
Subject to a change
in
the roster of Facilities set forth in 3.1(a) and (b) above by the
establishment of new, replacement or additional Facilities as set
forth in Schedule 3.5, the shipping origin of A&P Stores may
be
changed in accordance with this Schedule 3.1(d). A&P may instruct
C&S to
change the shipping origin of one or more A&P Stores;
provided, however, any change to the shipping origin of A&P Stores,
whether singly
or in the aggregate, that could reasonably be
expected to (a) increase or decrease the volume of any Shared
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
11
<PAGE>
Facility
by [*] or more [[*]] shall require
the mutual
written
consent of C&S and A&P. In addition, the Parties may agree, at
any
time, to change the
shipping origin of any one or more A&P Stores.
Changes
of shipping origin of A&P Stores
that occur during the course of
any
Contract Year shall be reflected in a Flex Budget.
3.2 DEDICATED
FACILITIES.
The
Parties acknowledge and agree that the
Dedicated
Facilities are exclusively utilized to support the A&P Stores
serviced
from such Facilities.
C&S covenants and agrees that it will not
perform
any services or other activities of any sort whatsoever
at any of
the
Dedicated Facilities (a) on behalf of its other customers, (b) on
its
own
account, or (c) for A&P Stores other than the
A&P Stores which are
normally
serviced by such
Dedicated Facilities,
except to the extent
expressly
consented to in advance and in writing by A&P. Furthermore, C&S
agrees it
will not, without
A&P's prior written approval, warehouse at or
transfer
to or from any
Dedicated Facility any Merchandise that is not
intended
for use or resale at the A&P Stores serviced by such Dedicated
Facility,
nor will C&S otherwise transfer Merchandise between any
Facilities. To
the extent A&P
gives written approval to C&S with regard
to
the activities for other customers otherwise prohibited in the
preceding
two (2) sentences, C&S will account for and record any
incremental expense incurred in connection with such activities and such
expenses
will not be considered Costs under this Agreement
and will
therefore
not be chargeable to A&P. The Parties will periodically
explore
additional
opportunities
to transfer the A&P Volume to Dedicated
Facilities. To
the extent any Shared Facility ceases to hold any
significant amount of case volume for C&S customers
other than A&P
Volume
for a
period of time not less than one Contract Quarter, A&P and
C&S shall
jointly
determine if such Shared Facility shall be treated as a Dedicated
Facility
for the purposes of this Agreement.
3.3 A&P
OPERATED FACILITIES.
A&P shall be permitted to occupy and operate any
A&P
Operated Facility, and to perform the Warehousing
Services or
any
other
activities at such A&P Operated Facility in any manner of its
choosing,
subject to A&P's obligations under this Agreement. [*].
3.4 REAL ESTATE
OBLIGATIONS. A
statement of all Real Estate Obligations as of
the
Effective Date has been annexed to this Agreement as
Exhibit 3.4.
Subject to
Schedule 3.5, below, C&S covenants and agrees that it shall
not
alter or
add to any of the terms of the current Real Estate Obligations
(or
any of the future Real Estate Obligations
established pursuant
to
Schedule
3.5 below) without
first notifying A&P in writing. Furthermore,
C&S
agrees that to the
extent it enters into any real estate financing
transactions with
respect to an existing Facility for the exclusive
benefit of
C&S (e.g., a sale-leaseback transaction) which would give
rise
to Costs
in excess of what is set forth in the Approved Budget for the
Contract
Year in which such
real estate financing transaction was entered
into,
C&S will hold
A&P cost neutral with respect to such real
estate
financing
transactions for such
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
12
<PAGE>
Contract
Year and for all future Contract Years. The preceding sentence
shall not
apply to renewals, extensions or modifications of existing or
future
Real Estate Obligations in the ordinary course of business.
3.5 FACILITY
RELOCATION, CLOSURE, OPENING OR CONSTRUCTION. From time to time,
C&S
may propose to undertake a relocation or closure of a Facility;
material
enhancement of a dedicated Facility requiring capital
expenditure
that is
not already reflected in the Capital Expenditures component of
the
Approved Budget;
or opening or construction of a new Facility dedicated to
A&P
(each, a "Facility Decision"). Prior to undertaking
a Facility
Decision,
C&S covenants and agrees that it will consult with A&P with
regard to
such Facility Decision. The Parties shall discuss in
detail and
in
good faith (a) any capital expenditure requirements related
to the
Facility
Decision and the impact of such expenditures on the Capex and
Approved
Budgets, including ROI assumptions; (b) the costs related
to the
Facility
Decision,
including any applicable shut-down expenses and
liabilities,
severance, [[*]]
and pension contributions for prior
underfunding, start-up costs, stranded facility costs, and cost of
money
for
either party (their
respective "Facility
Decision Costs");
(c) the
projected
operational savings
that will accrue once the Facility Decision
Costs have
been fully
mitigated;
and (d) the impact of the Facility
Decision
on C&S's compliance with the Service
Specifications and
other
performance of the Services under the Agreement. [*]
(i) [*]
(ii) [*]
(iii) [*]
(iv) [*]
[*].
3.6 FIXED
ASSETS. A&P
recognizes,
understands and
agrees that C&S may be
required
to purchase, lease or license
equipment or systems specifically
dedicated
to support the
Services and necessary to meet C&S's obligations
to
A&P under this Agreement. Except with respect to any Emergency
Expenditures, the
Parties agree that C&S shall not purchase, lease,
license or
otherwise acquire any new Fixed Assets, or change the financing
terms of
any current Fixed Asset financing arrangements, which would give
rise
to Costs in any Fiscal
Accounting Period in excess of what is set
forth in
the Approved Budget without first
obtaining the written consent
of
A&P, which consent
shall not be unreasonably withheld, delayed or
conditioned. Any and
all Fixed Assets which give rise to Costs chargeable
to
A&P
hereunder
shall
be depreciated in accordance with C&S's
depreciation schedule
for such Fixed Assets as set forth on the
Depreciation Schedule annexed hereto this Agreement as Exhibit
3.6.
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
13
<PAGE>
SCHEDULE 4
TRANSPORTATION SERVICES
-----------------------
4.1 GENERAL.
For so long as A&P
may direct during the Term of this Agreement,
C&S
shall be responsible for inbound transportation of Merchandise to
such
Facilities
and A&P Stores as
A&P may
direct, and shall provide such
services
in accordance with
the terms of this Schedule 4. C&S will
further
be responsible for the
routing and overall management of outbound
transportation and
delivery of Merchandise from such
Facilities to such
A&P
Stores as A&P may direct, and C&S shall hire third-party contract
carriers
to deliver certain Merchandise to the A&P Stores, all in
accordance
with
this Schedule 4 or otherwise as directed by A&P.
Notwithstanding the
foregoing,
the A&P Stores bannered "Pathmark" are
currently
serviced by Grocery Haulers, Inc. ("GHI")
under a contract
directly
with A&P, and C&S has no management or oversight
responsibility
with
respect to GHI or the outbound transportation of Merchandise to the
A&P
Stores bannered "Pathmark". Until such time as A&P
may amend its
contract
with GHI, GHI shall be responsible for the
routing and delivery
of all
shipments of Merchandise to the A&P Stores bannered Pathmark.
Together,
C&S's management of the inbound and outbound transportation
and
hiring
of contract carriers as set forth herein shall
be referred to as
the
"Transportation Services". The Parties agree that, in its sole and
exclusive
discretion, A&P may elect, upon commercially reasonable notice
to
C&S, to assume exclusive responsibility
for, or to contract with any
third party to
manage, the Transportation Services; provided that any Base
Management
Fee or Administrative Management Fee
payable to C&S hereunder
this
Agreement shall not
be reduced as a result of A&P exercising
its
right
under this Schedule
4.1; and provided further that A&P shall be
responsible for
assuming from C&S such tractors, trailers and other
similar
assets owned or leased by C&S that C&S can
demonstrate were
utilized
in its performance of the Transportation Services and which will
not
be used by C&S as a result of
A&P exercising its
rights hereunder.
C&S
agrees to act in a commercially reasonable fashion
to mitigate any
expense or
losses associated with
such assets prior to A&P's
assumption
thereof.
4.2 INBOUND
TRANSPORTATION.
Subject to A&P's rights in Schedule 4.1 above,
C&S
shall manage inbound delivery of Merchandise as it is
shipped from
A&P's
vendors to the Facilities. C&S shall use commercially reasonable
efforts to
solicit bids from, and to otherwise negotiate with, reputable
third-party contract
carriers for inbound transport rate proposals
to
obtain the
lowest possible rate for the delivery of Merchandise from the
A&P
vendors to the Facilities. A&P shall have the right
to audit and/or
monitor
C&S's bidding processes with regard to inbound
transportation.
[[*]].
C&S shall provide
to A&P, on a
continuous
and ongoing basis, a
report
setting forth all
negotiated contract rates for the transport of
Merchandise from
the A&P vendors to the Facilities (the "Negotiated
Inbound
Rates"). Subject to the availability and capacity of such
contract
carriers, C&S
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
14
<PAGE>
shall
invoice A&P the Negotiated Inbound
Rates for any delivery of
Merchandise from the A&P vendors to the Facilities.
4.3 OUTBOUND
TRANSPORTATION.
The Parties agree that C&S, in cooperation with
A&P
and subject to A&P's strategic direction and right to assume
exclusive
responsibility for the Transportation Services, shall be responsible for
the
design, development and implementation of the outbound transportation
activities,
including, but
not limited to, transportation network
configuration
and routing,
and for the overall management of
Transportation Services supporting the A&P Stores, except for the A&P
Stores
serviced by GHI as set forth in Schedule 4.1.
C&S agrees to
arrange,
through the hiring of
reputable contract
carriers on a sub-
contracted
basis, for the diligent, professional and expeditious transport
of such Merchandise
to the A&P Stores,
except for the A&P Stores serviced
by GHI.
C&S agrees to
arrange, through its contract carriers, for the
provision
of transportation services, including such accessorial and
special
services that may relate to transportation services and may be
requested
by A&P, and to
adhere to, and to cause its contract carriers to
adhere to,
the standards
of service, delivery specifications,
and other
service
requirements as set forth in the Service Specifications. C&S
acknowledges and
agrees that it will be responsible to A&P for the
performance of
the transportation services by such contract carriers.
C&S's
performance of the Transportation Services set forth herein shall
be
based
upon the Service
Specifications and other projections, information
and
directions provided by A&P to C&S. All costs associated with
outbound
transportation to
the A&P Stores
shall be estimated and agreed to by the
Parties,
shall be regarded as Costs herein, and shall be incorporated
into
and made a
part of the Interim
Budget and any
Approved Budget. Title
to
Merchandise shall remain with C&S until (i) such time as the trailer
containing
Merchandise exits the
loading dock of the applicable Facility,
in the
case of Merchandise
that is picked up from the Facility by a
contract
carrier arranged for by A&P; or (ii)
such time as the
trailer
containing
Merchandise is
received at the destination A&P Store,
in the
case of
Merchandise that is picked up from the Facility by a contract
carrier
arranged for by C&S. Theft of Merchandise or Fixed
Assets from an
A&P
Store location shall not be the
responsibility of C&S, unless it is
theft
committed by
a contract carrier or other party for whom C&S
is
responsible under this Schedule.
15
<PAGE>
SCHEDULE 5
OTHER SERVICES
--------------
5.1 GENERAL.
C&S agrees to
perform certain services (the "Other Services") on
A&P's
behalf that are incidental or in addition
to the Services, as
specified
in this Schedule 5. The Parties agree that the costs
incurred
by C&S
in connection with the rendering of the Other Services, and all
compensation earned by C&S in connection therewith, shall
not constitute
Costs
but shall remain the sole responsibility of C&S and shall be
excluded
from the calculation of the Interim Budget and shall
not be
incorporated into or made a part of any subsequent Approved Budgets
under
Schedule
8.
5.2 COUPON
PROCESSING
SERVICES. C&S agrees that it will perform coupon
processing
services with respect to all of the A&P Stores (excluding
those
stores
that as of the
Effective Date
are bannered as "Pathmark" and
excluding
stores that A&P
may acquire, unless otherwise agreed in writing
by the
Parties).
C&S agrees
that it shall commence performing such
services
as soon as reasonably practicable
following the Effective Date
(which
shall be no
later than August 2008) [[*]]. The
Coupon Processing
Services
will be performed in accordance with terms and conditions
established by A&P and C&S and set forth in the Service
Specifications,
[*].
A&P will pay to C&S a fee of [*] per Contract Year for such
services,
which
will be payable in accordance with Schedule 9 hereof. [*].
Notwithstanding the foregoing, the Parties further agree that:
(a) if the
coupon
business materially changes during the Term and there is a
material
reduction
in the prevalence of
paper coupons, [*]
then the Parties shall
discuss
an appropriate modification to the
coupon processing services
and/or the
fee payable by A&P to C&S hereunder.
5.3 ACCOUNTS
RECEIVABLES
DEDUCTIONS.
C&S agrees that throughout the Term of
this
Agreement it shall process and collect on A&P's behalf all accounts
receivable
deductions
that are due A&P
from the A&P
vendors ("Accounts
Receivables Deductions") and which A&P may direct C&S to so
collect. [*].
5.4 RECLAMATION.
C&S agrees
that throughout the Term of this Agreement it
shall
perform reclamation services (the "Reclamation Services") with
respect to
all damaged, discontinued or unsalable Merchandise located at
the
A&P Stores in accordance with the terms and conditions
set forth in
Exhibit
5.4 hereto. [*].
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act of 1934, as amended.
16
<PAGE>
SCHEDULE 6
SERVICES FEES
-------------
6.1 GENERAL.
In
addition to any other amounts payable hereunder, as
consideration for
performing
the obligations under this Agreement,
A&P
shall pay
to C&S the Services Fees, as set forth and defined below. In
addition
to the Base Management Fee and the Administrative Management
Fee,
A&P
shall also pay to
C&S the Incremental Volume Fee, the Cost Savings
Gainshare
Incentive Fee and the [*] if certain
conditions are satisfied,
as
described below. For
purposes of this Agreement, the Base
Management
Fee, the
Administrative Management Fee, the Incremental Volume Fee, the
Cost Savings Gainshare Incentive Fee and the [*] shall be referred
to
herein as
the "Services Fees."
Services Fees
shall also include (a)
the
fees
and/or [*] by A&P with respect to the Other Services as
set
forth in Schedules
5.2, 5.3 and 5.4 (together, the "Other Services
Fee")
and (b) any fees later agreed to by the Parties, including
for
Additional
Services.
6.2 FEES.
(a)
Base Management
Fee. The "Base
Management Fee"
will be [[*]] per
Contract Year
(prorated for the Ramp-Up Period) commencing on the
Effective Date, as
adjusted pursuant to Schedule 6.4 hereof.
The
Base Management Fee shall be payable to C&S in accordance with the
terms and conditions set forth in Schedule 9 hereof.
(b)
Administrative
Management Fee. In
connection with
C&S's
provision
of corporate and administrative services and personnel, C&S
shall be
entitled to an "Administrative Management Fee" in an amount equal
to
[*] per Contract Year
(prorated for the Ramp-Up Period) commencing
on the Effective Date,
as adjusted pursuant to Schedule 6.4 hereof.
The Administrative
Management Fee
shall be payable to C&S in
accordance with
the terms and conditions set forth in
Schedule 9
hereof.
6.3 INCENTIVE
COMPENSATION FEES. In
addition to
the Base Management
Fee and
the
Administrative Management Fee and the Other Services Fee, C&S may be
entitled
to receive the following fees (the "Incentive Compensation
Fees").
(a)
Incremental
Volume Fee.
To the extent
A&P's total net
sales (as
defined by US
Generally Accepted
Accounting
Principles
("GAAP"),
consistently applied)
exceeds [*] (the "Incremental Volume Fee
Trigger") in
any Contract Year, C&S will be entitled to an
"Incremental Volume
Fee" in the amount equal to [*]. The
Incremental Volume
Fee, if any, shall be calculated in
connection
with the reconciliation performed by A&P and C&S following the
completion of the year-
------------------------------
* Material
omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
17
<PAGE>
end reconciliation at the end of each Contract Year, as set forth
in
Schedule 8.5.3 and
the Incremental Volume Fee will be
invoiced to
A&P on the Weekly Statement immediately following completion of
such
year-end reconciliation. The Incremental Volume Fee will not be
in
effect for
the Ramp-Up Period,
but will be in effect for the
remainder of the Term.
The Incremental
Volume Fee Trigger will be
equitably adjusted by the Parties for any acquisition or
divestiture
by A&P.
(b)
Cost Savings
Gainshare Incentive Fee. During the Ramp-Up Period and
in any Contract Year, C&S may be entitled to receive a "Cost
Savings
Gainshare Incentive
Fee" as calculated in accordance with
Schedule 8.11 hereof.
(c)
[*].
During the Ramp-Up
Period and in any Contract Year, C&S may be
entitled to
receive a [*] as calculated in accordance with
Schedule 7.15(c) hereof.
6.4 CPI
ADJUSTMENTS TO CERTAIN SERVICES FEES.
(a)
The Base
Management Fee and the
Administrative Management Fee shall
be adjusted at the beginning of each Contract Year, including the
First Contract Year, by a percentage equal to that percentage by
which the
non-seasonally adjusted Northeast Urban Average All Items
Consumer Price Index for All Urban Consumers (1982 - 1984 = 100),
as
available on the first
day of the new Contract Year from the Bureau
of Labor Statistics of the United States Department of Labor, or
any
successor index
("CPI"), varies
from the same on such day of the
prior year. The
Parties agree that they will use the CPI report for
the month of August
each year as the basis
for comparing
to the
prior year,
as such report becomes available
generally within two
weeks of the close of August. For purposes of illustration, for
the
CPI adjustment that
will occur
effective upon the second full
Contract Year commencing September 26, 2009, assume that the CPI
for
August 2008 is 258.1
and the CPI for August 2009 is 260.4, then the
CPI adjustment effective September 26, 2009 is 260.4 - 258.1 = 2.3
/
258.1 = 0.89%.
The then current Base Management Fee would be
multiplied by 0.89% to arrive at the increase to the Base
Management
Fee. If
the then current Base
Management Fee was [[*]], then the
adjustment would be
[*] and the new Base Management Fee would
be
[*]. Notwithstanding
the above, the adjustment shall have an annual
cap of (i) 2.5% for the Base Management Fee only and (ii) 1.5% for
the Administrative Management Fee only, provided in each case that
the excess over the capped amount shall be accumulated and applied
to future adjustments
to the extent the CPI adjustment in any year
is less than
the capped amount. For example, if in the first
adjustment cycle the
CPI is 3.0%, the second adjustment cycle the
CPI is 3.2% and the
third adjustment cycle the CPI is 0.5%, for
purposes of
calculating the adjustment in the third cycle to the
Base Management Fee, the accumulated excess for the prior two
cycles
is 1.2%, thus the adjustment is 0.5%
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
18
<PAGE>
+ 1.2% = 1.7%.
In the case of the Administrative
Management Fee,
the accumulated excess would be 3.2%, so the adjustment in the
third
adjustment cycle would be 0.5% + 1.0% = 1.5%, leaving an
accumulated
excess of 2.2% (3.2% less the applied deficit of 1.0%).
(b)
The Incentive
Volume Fee Trigger
shall be adjusted at the beginning
of each Contract Year, including the First Contract Year, for the
"CPI for All Food" for most recent period for which such
calculation
is "Final"
as reported by the United States Department of
Agriculture Economic Research Service (or, if not available from
the
USDA, then as reported by such other similar authority).
As set forth in
Schedule 8.11, the
Baseline Budget is also subject
to a CPI adjustment pursuant to this Schedule 6.4.
19
<PAGE>
SCHEDULE 7
PROCUREMENT AND PURCHASING SERVICES; [*]
----------------------------------------
I.
GENERAL
7.1 MERCHANDISE.
Subject
to the terms and conditions
set forth in this
Agreement,
A&P agrees to purchase from C&S, and C&S agrees to sell
to A&P,
certain
quantities of grocery,
produce, dry
bakery, candy, fresh meat,
fresh
deli, fresh seafood, dairy, frozen (mainline), frozen bakery,
frozen
meat,
frozen commodities, ice cream, ice, HBC/GM, private label products,
spices
and supplies, and certain other merchandise in the product
categories
carried by C&S or A&P, but excluding the products set forth
in
Schedule
7.4(a) (collectively, "Merchandise") for use or resale at the
A&P
Stores.
7.2 EXCLUSIVITY.
Except
as may be otherwise expressly stated in this
Agreement,
A&P agrees that for the Term of this Agreement it
shall not
contract
with any unaffiliated third party other than C&S to procure
and/or
purchase Merchandise.
7.3 A&P
STORES. The term
"A&P Stores" means all supermarket stores owned and
operated
by A&P or any of its Affiliates as set forth on
Exhibit 3.1,
attached
hereto. In addition,
the term "A&P Stores" shall include any new
or
replacement stores of A&P or any of its Affiliates in the
geographic
region of
any of the A&P Stores, except that A&P Stores shall not be
deemed
to include any acquisition of ten
(10) or more stores at one time
by
A&P, nor shall it
include those stores which are acquired by
A&P and
which, at
the time of such acquisition, are already serviced by a third
party
logistics,
procurement and/or
purchasing services
provider other
than
C&S and A&P was required to assume such third party contract as a
condition
of acquiring such stores. Likewise, should C&S acquire a
business
that supplies A&P, whatever contracts are then in existence
shall
continue
and shall not be automatically subsumed into this Agreement.
7.4
EXCLUSIONS.
(a)
Merchandise does
not include the following products:
(i) products
that are available for purchase by A&P
through direct
store delivery ("DSD")
or from cross
dock vendors and designated as DSD or cross dock by
A&P from time to time;
(ii) certain seasonal
GM or specialty products, which may
include natural,
organic and private label products,
which are procured
and purchased by A&P (such as
those products stored at the A&P Crown Facility) from
specialty suppliers who at the time of this Agreement
are, or in the future may become, authorized
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
20
<PAGE>
by A&P in A&P's sole discretion to procure such product
on behalf of A&P, provided however that
A&P will
in
good faith support
C&S and purchase such products
through C&S
if, in the reasonable
opinion of A&P, C&S
is cost competitive
and provides
similar services
to
the other vendors of such products;
(iii) Floral;
(iv) Tobacco;
(v) Pharmacy
(prescription medications); or
(vi) Liquor.
(b)
Nothing
in this Agreement
shall prohibit or otherwise limit A&P's
ability to (i) purchase either now or in the future any item that
is
available to
A&P via DSD or cross dock, or (ii) designate on
a
temporary or long term basis any Merchandise as DSD or cross
dock.
7.5 PROCUREMENT
GENERALLY. For
purposes of this Agreement, to "procure" shall
mean to
negotiate directly or indirectly with the applicable vendor with
respect to
all terms of the purchase of goods including, but not limited
to
(as applicable), price, specifications, quantity,
freight and [[*]]
(the
"Purchase Terms"). Both Parties shall, with respect to the
Merchandise it
procures hereunder: (a) procure such Merchandise, and
otherwise
operate, in accordance
with all applicable law and with prudent
and ethical business
practices;
(b) maintain
a right-sized procurement
organization staffed with competent and appropriately skilled buyers, and
supported
by a commercially reasonable systems infrastructure, all taking
into
account the level and nature of procurement activity; and (c) in
all
cases
negotiate for its most competitive price
available with respect to
the
Merchandise that it procures. The Parties acknowledge and agree
that,
in its
sole and exclusive
discretion, A&P
may elect upon commercially
reasonable
written
notice
to C&S to assume exclusive or partial
responsibility for procuring any or all of the Merchandise intended
for
use or
resale at the A&P Stores as more fully set forth in Schedule
7.7(e)
hereof;
provided that any Base Management Fee or Administrative
Management
Fee
payable to C&S under this Agreement shall not be reduced as a result
of
A&P exercising its right under this Schedule 7.5.
Subject
to any
exceptions
contained in this Agreement, C&S shall continue to purchase
all
such
Merchandise as set
forth in Schedule 7.6, below. A&P shall have
exclusive
responsibility
for procuring the
goods that are excluded from
Merchandise as set forth in Schedule 7.4(a), hereof. C&S shall not engage
in the
procurement of any Merchandise in connection with the A&P Volume
except as
is expressly stated in this Agreement.
[*].
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
21
<PAGE>
7.6 PURCHASING
GENERALLY. For the
purposes of this Agreement, to "purchase"
shall
mean to: (a) perform the physical act of
purchasing goods
through
the
execution and
tender of purchase orders to an applicable vendor;
(b) to
pay for such goods; and (c) to own such goods
for the period
immediately preceding
their resale
to A&P. [*]. A&P
shall
have exclusive responsibility for purchasing the
goods that
are
excluded
from Merchandise as set forth in Schedule 7.4(a), hereof.
II.
PROCUREMENT AND PURCHASE OF CENTER-STORE CATEGORIES OF PRODUCTS
7.7 CENTER-STORE
PROCUREMENT AND PURCHASING.
(a)
[*].
(b)
C&S shall
purchase and manage the regular turn Center-Store Products
inventory intended for
use or resale at the A&P Stores. C&S's
management of
A&P's regular turn Center-Store Products
inventory
shall be based upon historic Center-Store Products turn
information
maintained by C&S, volume forecast requirements provided by A&P,
product specifications
supplied by A&P, and other projections
and
other information and direction provided by A&P to C&S.
(c)
C&S shall
purchase promotional or other high-velocity Center-Store
Products inventory intended for use or resale at the A&P
Stores as
directed by
A&P. C&S's purchase of promotional or
high-velocity
Center-Store Products shall be based upon A&P's advance
estimates of
promotional volumes, product specifications, purchase quantities,
delivery dates,
store-specific volume
allocations (as further set
forth in the Service Specifications) and other Center-Store
Products
information supplied
by A&P to C&S, and other projections and other
information and direction provided by A&P to C&S.
(d)
C&S agrees
that it shall maintain
and provide A&P on
a daily basis
detailed inventory date code viewing and close dated reports with
respect to all Center-Store Products that have code dates, intended
for use or resale at the A&P Stores, along with any other
reports or
information
required under the Service Specifications. The Parties
recognize that C&S as of the Effective Date does not have a
systemic
solution for this
obligation and is working with vendors on "open"
code dating and
external labeling to facilitate more efficient
tracking of code dates on Center-Store Products, but that
C&S shall
establish such
a system within a commercially reasonable time
following the Effective Date.
(e)
[*].
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
22
<PAGE>
(f)
[*].
7.8 [*] WITH
RESPECT TO CENTER-STORE PRODUCTS.
(a)
[*].
On the first Tuesday following the end of each Fiscal
Accounting Period (but in no event sooner than 2 days following
the
end of the Fiscal Accounting Period), C&S will provide to A&P
movement reports that will permit A&P to bill vendors
for A&P's [*]
for all Center-Store
Products. C&S will
not collect any [*]
from
A&P vendors with
respect to
Center-Store Products unless expressly
consented to in writing by A&P.
(b)
[*].
C&S agrees it
shall not make
any communication to any vendor or other third party, or engage in
any other conduct, that directly or indirectly reduces any economic
benefits realized by A&P under its [*] programs in connection with
the Center-Store
Products Volume or that otherwise has an
adverse
impact on A&P's negotiations regarding such [*] programs. In no
event shall any [*] program negotiated by C&S on its own
account or
that of its customers in any way prevent, interfere with, or
otherwise take from
A&P's realization of the full economic benefit
of the [*] programs
A&P may
negotiate for its own account with
respect to the Center-Store Products Volume. A&P shall provide or
substantiate a direct nexus between the prohibited actions
described
in this Schedule
7.8(b) and any adverse economic impact suffered by
A&P.
III.
PROCUREMENT AND PURCHASE OF FRESH CATEGORIES OF PRODUCTS
7.9 FRESH
PRODUCTS PROCUREMENT AND PURCHASING.
(a)
Terms Applicable
to all Fresh Products.
(i) General.
[*].
Under
no circumstances shall C&S
substitute for any
Fresh Products alternative goods
that do
not possess the identical product
specifications as those designated by A&P without
A&P's express written consent. A&P agrees to respond
in a timely manner to C&S requests to substitute
Fresh Products
in order to meet A&P's service
requirements in the event a vendor designated by A&P
is unable to fulfill an order. The
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
23
<PAGE>
processes governing
the substitution of Fresh Products
shall be set forth in the Service Specifications.
(ii) Procurement.
[[*]].
C&S
shall purchase all
Fresh
Products as
instructed
by A&P, all in strict
accordance with
the product
specifications,
vendor
designations and other
terms of purchase established
by A&P.
(iii) Purchases -
Regular Turn Inventory. C&S shall
purchase and manage the regular turn Fresh Products
inventory intended
for use or resale at the A&P
Stores. C&S's
management of A&P's regular turn Fresh
Products inventory shall be based upon historic Fresh
Products turn information maintained by C&S, volume
forecast
requirements
provided by
A&P, product
specifications and
vendor designations
supplied by
A&P, and other projections and other information and
direction provided
by A&P to
C&S. C&S shall be
responsible for determining the quantity and delivery
date of regular turn inventory for Fresh Products.
C&S's
purchase of
replenishment
Fresh Products
inventory shall be in
strict accordance with all
terms of purchase established by A&P in its
procurement of Fresh Products.
(iv) Purchases
- Promotional. C&S shall purchase
promotional or
other high-velocity Fresh Products
inventory intended for
use or resale at the A&P
Stores.
C&S's purchase
of promotional or high-
velocity Fresh
Products (which shall include turkey,
shrimp, crab and other
high-tonnage
categories
of
frozen commodities) shall be based upon A&P's advance
estimates
of
promotional volumes, product
specifications, vendor designations,
purchase
quantities, delivery
dates, store
specific volume
allocations (as further set forth in the Service
Specifications), and other Fresh Products information
supplied by
A&P to C&S, and other projections
and
other information and direction provided by A&P to
C&S.
(v) Short
Supply. If C&S fails to maintain the Fresh
Products turn inventory, or to otherwise purchase any
Fresh Products
in accordance with instructions
received from
A&P hereunder, so as to result in
"stock-outs" or short supplies of Fresh Products, C&S
shall promptly notify A&P of such fact and A&P shall
instruct C&S as to
the manner and vendor
from whom
C&S shall purchase such amount of replenishment Fresh
Products as may be required to cure the short supply.
In the case of a short
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
24
<PAGE>
supply, at A&P's
request C&S shall be required to
prove that it made a good faith attempt to purchase
all Fresh Products from the Fresh Products
vendors
designated
by A&P.
(vi) Inventory;
Purchase Orders;
Inspections. Subject
to
the confidentiality
provisions set
forth in this
Agreement, C&S
will provide A&P,
at the end of each
business day, a report providing detailed transaction
information with respect to the purchase orders for
Fresh Products processed during such business day.
A&P will
review such purchase order information
provided by the reports for Fresh Products and will
provide C&S with
such changes to the purchase orders
as A&P may request
prior to 10:00 a.m. on the next
day following the
delivery of such
reports. Such
reports will
enable A&P to verify that C&S is
purchasing Fresh
Products in conformity with product
specifications and
vendor designations supplied by
A&P. C&S will
be responsible for
the inspection of
all Fresh Products prior to their acceptance at the
Facilities by
C&S to ensure strict compliance
with
A&P's Fresh
Products specifications. C&S will
provide A&P prompt notice of any Fresh Products that,
in C&S's
judgment, warrant complete or partial
refusal. A&P
and C&S shall collaborate, in good
faith, to interact with vendors with respect to such
Fresh Products and the Parties will minimize any out-
of-code Fresh
Products, including distribution
of
such Fresh
Products to the A&P Stores. If A&P
requests that C&S accept any Fresh Products that C&S
would otherwise reject, A&P and C&S will agree on a
plan of distribution for such Fresh Products and C&S
will not be responsible for out-of-code or
quality
issues related to such product.
(vii) Forward Buying.
[*].
(viii)Information and
Reports. C&S agrees that it
shall
maintain and provide to A&P on a daily basis detailed
inventory date code
viewing with
respect to short
coded items and close
dated reports with respect to
all Fresh Products
intended for use or resale at the
A&P Stores,
along
with
any other reports or
information required
under the
Service
Specifications. In
addition, C&S will provide A&P on
a daily basis a daily inventory report on all fresh
seafood slots/SKUs at the Facilities, which shall be
prepared and maintained by C&S in accordance
25
<PAGE>
with mutually agreed upon polling schedules and other
specifications.
The Parties
agree to collaborate
closely on minimizing out-of-code Fresh Product.
(ix) Exact Weight -
Meat. C&S shall
invoice A&P
for the
exact weight of all fresh and frozen meat products in
Facilities with
voice selection technology, which
information shall be scanned from the case packaging
of the meat products as they are selected by C&S for
delivery to
the A&P Stores.
In Facilities that
do
not have voice selection technology, C&S will
continue to
bill on an average
weight basis.
The
Parties will agree on a method of calculating average
weight, which will
be set forth in the Service
Specifications.
(x) Product
Handling Requirements.
C&S
shall receive,
store, handle
and distribute all
Fresh Products in
strict accordance with
the Fresh Products handling
requirements set forth in the Service Specifications.
7.10 FLORAL
PRODUCTS PROCUREMENT AND PURCHASING. A&P shall determine all
Floral
Product specifications and shall exclusively negotiate with
vendors
all terms
of purchase for Floral Products including, but not limited to,
cost and
quantity, delivery date and allowances, rebates, [[*]] and any
other
monetary or non-monetary funding for all Floral Product intended
for
use or
resale at A&P Stores. A&P shall purchase all Floral
Products. A&P
shall
purchase and manage the regular turn Floral Products inventory
intended
for use or resale at
the A&P Stores. C&S shall have neither
procurement nor
purchasing responsibility with respect to Floral Products
under this
Agreement.
C&S agrees
that, except as otherwise expressly
stated
herein, C&S shall not communicate in any fashion, whether directly
or
indirectly, with any
of A&P's vendors with respect to Floral Products
volume
intended for use or resale at the A&P Stores.
7.11 [*] WITH RESPECT
TO FRESH PRODUCTS.
(a)
[*].
(b)
[*].
In no event shall any
[*] program negotiated by C&S on its own
account or that of its customers in any way prevent, interfere
with,
or otherwise
take from A&P's realization of the full economic
benefit of the [*]
programs A&P may negotiate for its own account
with respect to
A&P's Fresh
Products Volume.
A&P shall provide or
substantiate a direct nexus between the prohibited actions
described
in this Schedule 7.11(b) and any adverse economic impact suffered
by
A&P.
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act 1934, as amended.
26
<PAGE>
(c)
[*].
(d)
[*].
IV TERMS
COMMON TO ALL PROCUREMENT AND PURCHASING
7.12 PROCUREMENT
SERVICE LEVELS.
(a)
Target
and Required Purchasing Service Level. C&S agrees that,
commencing on the Effective Date and continuing during the Term of
this Agreement,
the targeted service level for all Merchandise
purchased by
C&S on A&P's behalf will be [*] (the "Targeted
Purchasing Service
Level"), and the Required Purchasing
Service
Level shall be [*] for the first 18 months following the Effective
Date and [*]
thereafter (the "Required Purchasing Service Level").
The punitive service
level shall be [*] for the first 18 months
following the
Effective Date and [*] thereafter (the "Punitive
Service Level"). The
Purchasing Service Level will be measured each
Contract Week (the "Measurement Period") during the Contract Year
for all A&P Volume purchased from C&S:
(i) by Facility;
(ii) by
Department within
Facilities;
and (iii) aggregated
for all
Facilities.
(b)
Definitions.
The "Purchasing Service Level" in each instance is calculated
as a
quotient, the
numerator of which shall be the number of
cases (or
shipping units,
in the case of HBC/GM) invoiced, plus "Ad
Overpulls," short
supplies due to
untimely or
inaccurate
volume
forecasts provided by
A&P (subject to
the information requirements
set forth in the Service Specifications), and "Manufacturer Out-of-
Stocks," and
the denominator shall be the number of cases (or
shipping units, in the case of HBC/GM) ordered, less unauthorized
cases and
discontinued
items. The Purchasing Service Level
calculation shall be adjusted at the end of each
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act of 1934, as amended.
27
<PAGE>
week to reflect any shortages from the prior week that are in
excess
of [*]
(based on audited results).
"Ad Overpull" shall be
defined as any
promotional volume in excess
of the forecast timely provided by A&P (with respect to
whether A&P
has provided information "timely" being determined in accordance
with the Service Specifications and the
subject vendor's lead-time
requirements).
An item will qualify
as a "Manufacturer Out-of-Stock" if: (i) such
item was subject to a
product recall; (ii) such Fresh Products item
was rejected by C&S on quality-based grounds and such
rejection was
confirmed by A&P or a USDA inspector; (iii) C&S provides within
seven (7) days
after shipment to the A&P Stores written
proof of
out-of-stock status (e.g., a letter from the manufacturer
indicating
the quantity of the item that was unavailable from the manufacturer
for the period in question, or a received
purchase order
issued
within proper lead time indicating the quantity of the item that
was
cut by the manufacturer); or (iv) the manufacturer has refused
to
ship product due to a dispute over an Accounts Receivables
Deduction
as set forth in Schedule 5.3 and C&S
provides such
evidence as
described in sub-schedule (iii) in this paragraph.
"Department" shall
mean each of the following [*] groupings of
product categories:
[*]
(c)
Calculation
and Reporting.
C&S will provide
A&P, throughout the
Term of this Agreement, on a weekly and Fiscal Accounting Period
basis, a "Purchasing Service Level Reconciliation Report" showing,
with respect
to all orders processed for the given period, the
actual Purchasing Service Levels
(each, respectively,
the "Actual Purchasing Service
Level") [*].
------------------------------
*
Material omitted and filed separately with the Securities and
Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act of 1934, as amended.
28
<PAGE>
(d)
Service Level
Breaches.
A "Minor Service Level Violation" [*]
shall occur
when
C&S fails to meet the Required
Purchasing Service
Level [*] in
any
Contract Week.
[*]
[*]
A "Punitive
Service Level Breach"
is a failure to
meet Punitive
Service Level measured
across all Facilities
in the aggregate for:
a) [*] consecutive Contract Weeks during any twelve month rolling
period; or b) any [*] Contract Weeks during any twelve month
rolling
period.
(e)
Penalties.
Minor Service Level Violation: [*].
[*]
------------------------------
* Material
omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment under
Rule 24b-2 of
the Securities Exchange Act of 1934, as amended.
29
<PAGE>
Punitive Service Level Breach: [*] for every [*] (pro-rated) by
which the Punitive Service Level measured across all Facilities is
not met, for each week
comprising the Punitive Service Level Breach
and for each
additional week
thereafter that C&S fails to meet the
Punitive Service Level
(measured across all
Facilities) during any
twelve month rolling period.
Termination Level Breach: A&P shall have the right to terminate
this Agreement
in the event that the Purchasing Service Level
measured across
all Facilities in the aggregate is below the
Punitive Service Level for [*] consecutive Contract Weeks or any
[*]
Contract Weeks during any twelve month rolling period. However, A&P
shall have the right to terminate this Agreement in the event
that
the Purchasing Service Level measured across all Facilities in t
